Why All Protectionists Are Essentially Luddites

Foundation for Economic Education ^ | January 24, 2017 | Donald J. Boudreaux

[Tolerance Sucks Rocks]

No, I personally don't believe protectionists are Luddites, unlike the author, but I do believe protectionist policies will hurt small businesses and consumers by making imports more expensive.

[Pearls Before Swine]

The case against protectionism is based on the theory of comparative advantage.

Mathematically, that theory is hard to refute, unless there is something wrong with the assumptions, to wit:

- Free mobility of labor
- Costless and easy retrainability

I don’t think either of those things are always true. If you’ve been trained to do a job for 25 years, settled in an area and have a family, it isn’t going to be easy for you to relocate, and it may not be cheap or quick to retrain you to a new skill. Further, that new skill—which will be in the areas which would have comparative advantage going forward—may not be immediately evident.

If the users of the theory incorporated some of these issues—which show up as socialized costs—into the cost of the items being made, I think that sometimes protectionist policies, or at least a multi-year taper into the new production regime, would be cheaper. The displacement costs are never considered, it seems to me.

[marron]

You may assume that the centerpiece of a protectionist policy is the tariff. The tariff is just the blunt object meant to enforce the overall agreement.

The most important piece isn’t protectionist at all except in spirit, which is to address the reasons companies leave. In a world of automated manufacturing, wages aren’t the key issue, the regulatory and legal climate is. Go after the reasons companies leave, clearing away the regulatory threats and hurdles and companies are less inclined to leave. Working in Mexico or China carries with it another set of problems that you wouldn’t choose if you didn’t have to.

The other part deals with the target country’s own protectionist policies, opening them up to your products. That is something that has been ignored until now. A lot of these countries have hidden tariffs that keep our products out, while our markets are open to them.

When Trump talks about making the markets fair, people just hear “tariffs” and “protectionism” but don’t hear the details which are quite free-market.

Another thing to remember, is that the economy isn’t healthy if you can get it cheap at Walmart, but your brother-in-law is living on your couch because they closed the factory here.

[ctdonath2]

“labor-saving innovation rather than trade is overwhelmingly responsible for the loss of manufacturing jobs.”

And that labor-saving innovation birthed by the necessity of productivity made illegal by ill-advised “minimum wage” laws.

[knarf]

Where are the factories shut down by higher taxes and many govt. regulations in all that ?

And the ones prevented from opening for similar reasons ?

[Stingray51]

The author does not mention taxes or regulation (labor, trade, etc.) of any kind. Yet both (vast categories each) are critical to comparing the costs of manufacturing between locations.

[Alberta's Child]

There's a lot of truth to what the author says, but he overlooks a very important point. What we have come to accept as "free trade" in this country has basically become a mechanism for getting around legal, moral and regulatory issues here in the U.S. that prevent us from operating the same way our trading partners do.

For example ... we don't hesitate to take on trading partners whose industries operate under environmental standards and using employee pay scales that would be illegal here in the U.S. Am I really a "protectionist" if I recognize the stupidity of outlawing slavery here in the U.S. while trading with countries where it is (for all practical purposes) a common practice?

[dfwgator]

Does Trump really want tariffs, or is he using the the threat of imposing tariffs to get the best possible deal?

[dfwgator]

Exactly. I don’t know what we have now, but it sure ain’t “Free Trade.” Does China open up her markets to US products? Hell, no.

[ctdonath2]

Your starred assumptions may be better described as:
- The fungibility of mundane labor.
To wit: work that pretty much anyone can do with minimal training can be done anywhere by anyone. The “mobility” you note isn’t that workers can move, it’s that the work can - to wherever cheaper labor can be found.

[pas]

Our upper management comes right out and tells us jobs are being moved to low-cost areas. They are not talking about regulation they are talking wages.

[Alberta's Child]

I suspect very few industries would simply shut a factory down due to costs, regulations, etc.

What usually happens is that a factory reaches the end of its useful life or needs to go through a major upgrade in order to support the production of new products, and the company simply decides that they're better off building a new one overseas than replacing or upgrading the one here.

[allendale]

The only thing virtually certain in economics is change. There will always be innovations, declines, new or depleted resources and these changes will inevitably cause disruptions to people who had been previously content and comfortable. Either you adapt, or you live with what wealth you accumulated or receive from generous people. Whether it be nations or individuals, everyone is subject to inevitable changes and shifting comparative advantages. Protectionism is a losing strategy. Innovative, free thinking, unhindered capitalism creates the wealth and the social justice that follows. The degree of social justice in any culture correlates directly with the wealth that culture generates. Trump will be successful if he unleashes capitalism rather than trying to “protect” it.

[Just mythoughts]

Minimum wage set by government is a protectionist policy. Rag on that policy. These so called ‘free trade’ deals have created a welfare class.

[Alberta's Child]

I don't think it matters much if China opens her markets to U.S. products. I suspect we produce very few things that people and companies in China would be buying anyway.

For example ... it's hard to sell a Honda from Marysville, Ohio in a country where most people ride bicycles everywhere they go.

[dfwgator]

For example ... it's hard to sell a Honda from Marysville, Ohio in a country where most people ride bicycles everywhere they go.

Maybe true 30 years ago, but Beijing and Shanghai now has some of the worst traffic jams in the world.

[Alberta's Child]

They are not talking about regulation they are talking wages.

And taxes, the cost of regulatory burdens, the cost of materials, etc.

[Alberta's Child]

Well, we sure aren’t going to sell them asphalt for new roads, either. LOL.

[Iron Munro]

This is misdirection and half truth.

Note that the population if 1977 was about 220 million compared to the population today of 324 million.

That is a population increase of 47%.

As shown in this chart, manufacturing jobs in 1977, comprised about 22 percent of all nonfarm payrolls.
But manufacturing jobs today only comprise 9% of nonfarm payrolls.

That is only 40% of the 1977 level.

So not only has the population gone up by 124 million, the percentage of the working population engaged in manufacturing is less than half of the 1977 level.

Certainly automation plays a major role, but all of those cars, trucks, tractors, electronic devices, appliances and garments coming here across borders and oceans didn't manufacture themselves in totally automatic factories.

[chajin]

Protectionism in the 2010s is a reaction, not to global trade, but to the mercantilism of many if not most of our major global competitors. For example, if we could meet China on a level playing field, we could clean their clocks; it is only because China is a pseudo-Marxist nation parading itself as free market that it gets away with what it has. (Bribing the Clintons didn't hurt either.)

There is also one other aspect, which is a catch-22 of sorts. Technological innovation has made it such that, in any developed society, there is for all practical purposes no poverty, as poverty has been defined throughout human history. As Robert Rector has pointed out on numerous occasions, 'poor' people in America have lifestyles very similar to the rest of America, with housing, food, and clothing, along with access to the commonplace technology, everything from radios and TVs to microwave ovens and refrigerator/freezers to the internet, smartphones, and video games. Historically, the disincentive to poverty was its life-crushing aspects of hunger, nakedness, and the cold (or heat), but that is no longer the case in any of the developed world.

In such a cornucopia world, there are only two incentives to work and succeed: to have *better* goods and services (bigger houses, newer cars, designer clothes, faster internet), or an ingrained work ethic. But an ingrained work ethic only "works" where there is work to be had, and global mercantilism has taken away much of that opportunity-to-work, which is why some level of protection is necessary. Just how much is anyone's guess, and if history is any indication we will go too far in the protectionist direction, just as we went too far in the globalist direction, but where we are is untenable.